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August 18, 2014

American Tire Distributors loses $49.5 million

American Tire Distributors Holdings Inc. posted a net loss of $49.5 million on net sales of more than $1.2 billion for its second quarter ended July 5, 2014. That compares to a loss of $5.8 million on sales of nearly $1 billion for the same period last year.

The company's operating loss of $30.2 million compares to operating income of $11.7 million in 2Q 2013.

For the first six months of the year, American Tire Distributors recorded a net loss of $83.5 million on net sales of $2.3 billion. (The company’s fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31; because the six months ended July 5, 2014, contained 27 weeks and the six months ended June 29, 2013,  contained 26 weeks, they are not comparable.)

Here's American Tire Distributors' industry overview, unedited, at the halfway point in the year.

"The U.S. and Canadian replacement tire markets have historically experienced stable growth and favorable pricing dynamics. However, these markets are subject to changes in consumer confidence and economic conditions. As a result, tire consumers may opt to temporarily defer replacement tire purchases or purchase less costly brand tires during challenging economic periods when macroeconomic factors such as unemployment, high fuel costs and weakness in the housing market impact their financial health.

"From 1955 through 2013, U.S. replacement tire unit shipments increased by an average of approximately 3% per year. We believe that we are experiencing the beginning of a recovery after a prolonged downturn, which began in 2008 for the replacement tire market. Replacement tire unit shipments were up 4.4% in the United States and 0.7% in Canada in 2013 as compared to 2012, as a rebound in the housing market, a decline in unemployment rates and increases in vehicle sales and vehicle miles driven impacted the U.S. and Canadian replacement tire market favorably.

"The Rubber Manufacturers Association projects that replacement tire shipments will increase by approximately 2% in the United States in 2014 as compared to 2013, as demand drivers continue to strengthen.

"Going forward, we believe that long-term growth in the U.S. and Canadian replacement tire markets will continue to be driven by favorable underlying dynamics, including:

* increases in the number and average age of passenger cars and light trucks;

* increases in the number of miles driven;

* increases in the number of licensed drivers as the U.S. and Canadian population continues to grow;

* increases in the number of replacement tire SKUs;

* growth of the high performance tire segment; and

* shortening tire replacement cycles due to changes in product mix that increasingly favor high performance tires, which have shorter average lives."

Aquisitions recap

Through June 27, 2014, the company closed on seven major acquisitions in the U.S. and Canada. The total purchase price was nearly $1.7 billion, broken out as follows:

Hercules Tire Holdings LLC: $318.8 million.

Terry's Tire Town Holdings Inc.: $372.6 million.

Regional Tire Distributors (Calgary) Inc.: $20.6 million.

Regional Tire Distributors (Edmonton) Inc.: $31.9 million.

Kirks Tire Ltd.: $73 million.

Extreme Wheel Distributors Ltd.: $6.5 million.

Trail Tire Distributors Ltd.: $20.7 million.

American Tire Distributors also purchased the wholesale operation of Kipling Tire Co. Ltd., on Jan. 17, 2014. Kipling's wholesale business distributes tires to approximately 400 retail customers in southern Ontario, Canada.

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